Government may raise Reserve Bank''s intervention bond limit

Mumbai: The government will review the ceiling on intervention bonds if the Reserve Bank asks for it, finance minister P Chidambaram said.

The ceiling on issue of Market Stabilisation Scheme (MSS) bonds, which the RBI can use to mop up funds released by its intervention to cap the rupee, is Rs150,000 crore ($37.7 billion) and analysts say the ceiling would have to be rised by at least a third if the rupee''s rise was to be checked.

"If there is a request from the Reserve Bank of India, we will certainly review it," Chidambaram said.

A finance ministry official, who did not wish to be named, said the MSS ceiling would be reviewed this week.

Analysts said auctions of Rs12,000 crore of MSS bonds and bills on Wednesday would lift outstanding issues above the Rs135,000 crore level that triggers a review of the ceiling.

The rupee has risen 2 per cent since a cut in US interest rates on September 18 boosted demand for emerging market assets. It hit a nine-year high of 39.62 per dollar last week.

India''s stock market has hit a record high every day since the US rate cut, fuelled in part by foreign investment. In the last eight days of September, foreign funds bought a net $3.6 billion of Indian stocks.

These inflows put pressure on the rupee to rise, which the RBI tries to counter by buying dollars. It bought $38.1 billion in the first seven months of 2007, and it was spotted intervening again today.